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Cuba Will End Dual Currency System After 2 Decades

For more than two decades, Cubans have used a unique dual currency system to protect a fragile economy, but with just weeks of his mandate remaining, President Raul Castro has signaled much-delayed change is finally coming.

Plans to scrap the divisive system were first mooted in 2003 as part of a series of market-oriented reforms introduced by Castro, who is due to step down in April, AFP reported.

Now, after years of delays, authorities on the Caribbean island are finally expected to bite the bullet and begin consolidating the two currencies, despite fears of a shock to the economy.

“This issue has taken us too long and it cannot be delayed any longer,” Castro said in a speech in December.

The government has resisted any commitment to a timetable, but many observers believe a meeting of the Central Committee of the Cuban Communist Party next month will finally set the process in motion.

The country has had two currencies since 1994 when it introduced the Cuban Convertible Peso, or CUC—alongside the Cuban Peso, the CUP—as part of measures to protect the economy in the wake of the collapse of its biggest sponsor, the Soviet Union.

The CUC, originally used exclusively for foreign trade and in the tourism industry before gradually seeping into the normal economy, is worth about 25 times the CUP and pegged to the dollar.

The dual currencies created a two-tier class system in Cuba, which favored those with access to the lucrative tourist sector through hotels, restaurants and foreign trade.

With the CUC, the state allows its companies to import at a preferential exchange rate-a dollar for a Cuban peso. The distortion allows state entities to ensure their margins while offering the public affordable prices in a country where the average monthly salary is around $30.

But the current system masks inefficiencies in the state sector, economists say. “The monetary duality is causing difficulties to evaluate the economy and competitiveness,” said economist Omar Everleny Perez, citing a complicated relationship with international markets, already hampered by a US trade embargo in place since 1962.